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Helga Kiss, tax director, RSM Hungary
Helga Kiss

These are the tax changes that companies should prepare for next year

Company car tax to increase two-fold, transfer pricing-related fines and amendments to the VAT Act. This is how companies will be affected by the bill on the 2023 budget according to experts in Hungary.

The bill brought forward last week, which establishes the foundation for the 2023 budget, would amend a number of tax regulations. Our tax experts at RSM Hungary have listed the most important changes affecting companies.

Company car tax to increase two-fold

The higher rates introduced due to the state of emergency will become final, and taxes on company cars will be permanently doubled. The bill would amend the Act on Company Car Tax to reflect the increased company car tax rates effective from 1 July 2022 which are specified in the decree on excess profits. Therefore, according to the bill, the amount of taxes payable on company cars in 2023 would be the same as the amount budgeted by the government for the second half of this year in the decree on excess profits. The following table presents the amount of company car tax payable depending on the engine power and environmental classification of each vehicle:

Engine power (kW)For environmental classifications 0 to 4For environmental classifications 6 to 10For environmental classifications 5, 14 and 15
0-50HUF 30,500HUF 16,000HUF 14,000
51-90HUF 41,000HUF 20,000HUF 16,000
91-120HUF 61,000HUF 41,000HUF 20,000
above 120HUF 81,000HUF 61,000HUF 41,000

Excerpt from bill T/360 on establishing the foundations for Hungary’s central budget for 2023.

Corporate income tax: introduction of adjustments relating to the impairment and derecognition of ownership interest

According to the bill, two items adjusting pre-tax profit would be added to the Corporate Income Tax Act. The proposal provides that any impairment recognised on ownership interest during the tax year against the pre-tax profit for the tax year at the taxpayer’s discretion would be added to the pre-tax profit, whereas upon the derecognition of ownership interest, the pre-tax profit would be reduced by the part of the amount recognised as an amount increasing the pre-tax profit in previous years which the taxpayer has not yet deducted from his pre-tax profit.

The adjustments outlined above could first be applied to impairment recognized in the 2022 tax year when calculating the tax liability for the 2022 tax year.

Changes in the innovation contribution obligation

The bill would amend the act containing the rules on innovation contribution as well. Accordingly, permanent establishments in the meaning of the Act on Local Taxes and the Hungarian branches of companies registered abroad would also be subject to innovation contribution. This provision would enter into force on the 31st day after promulgation.

Amendment to the VAT Act to include subsequent tax base reduction

Subsequent tax base reductions relating to so-called price-volume agreements, an arrangement typical for the pharmaceutical industry, would be possible. In such an arrangement, drugs are purchased from the manufacturer at a set price; however, once a certain volume is sold to end consumers, the manufacturer will pay back a pre-determined amount as a rebate from the amount it receives. 

VAT is initially paid by the manufacturer on the full amount. However, according to the new regulation, the manufacturer’s tax base may be reduced by the tax-free amount of the rebate it provides if such amount is or has been included in the tax base of the sale to the customer. 

The proposal may have been put forward in response to the judgment in case no. C-717/19 (the Boehringer case) of the European Court of Justice, and addresses arrangements in which, as part of a price-volume agreement, the taxpayer sells goods or services to another taxpayer which then resells them to end consumers. In such cases, the first seller in the chain is not directly connected to the end consumer and is unable to grant a cash rebate to the end consumer via the supply chain. As a result, rebates are granted through a third party. The taxpayer grants the rebate to a third party, which then passes the rebate on to the end consumer. 

As a general rule, the new arrangement will be applicable from the date when the new rules enter into force. However, according to a transitional provision, these rules may already be applied in connection with cash rebates paid in 2022, provided that the taxpayer had not exercised the option of tax base reduction with regard to such cash rebates before 1 January 2022. 

The regulations on group taxation are also changing

The VAT Act has been amended in such a way that the representative designated by the members involved in group taxation (who is the subject of the judicial and other administrative procedures relating to the exercising of rights and fulfilment of obligations associated with group taxation) will be able to retain this status even after the termination of the group taxation arrangement. 

According to the amendment, the designated representative will be able to make valid representations (e.g. self-revision) in his or her own name even after the group taxation arrangement is terminated.

Transfer pricing: gigantic fines and stricter rules

A two-and-a-half-fold increase in default fines, a new transfer pricing reporting obligation relating to corporate income tax returns, and changes in the rules pertaining to tax base adjustments would be new elements in the transfer pricing rules pertaining to related parties.

Unpaid customs duty: a new definition

The proposal amends the definition of "unpaid customs duty" in such a way that, in the future, any customs duty that is canceled on the basis of statutory regulations could no longer be deemed as unpaid customs duty and, therefore, a more serious punishment that takes the form of a customs penalty of up to 50 percent of the amount of unpaid customs duty would not be applicable in such cases.

However, according to the amendment, in the case of infringements, the customs authority has the power to levy a customs penalty if the infringement doesn’t involve unpaid customs duties, provided that the relevant conditions are met. In the case of such punishments, however, the customs authority will be required to assess the circumstances of the case as well.

Excise tax: a new category

According to the amendment, a new category would be introduced within manufactured tobacco to include heated tobacco products, the purpose of which is to extend the scope of products subject to an excise tax to include products consumed by heating that contain no tobacco or nicotine. The change would enter into force on 1 January 2023, and manufactured tobacco that uses heating technology would be transferred from the new categories of tobacco products to the category of heated tobacco products.

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